Rural Electric Cooperatives are a type of utility virtually unique to the United States. These cooperatives go by a variety of names including co-ops, RECs, REAs and EMCs -- electric membership corporations -- just to name a few.
Formed mostly in the 1930s as an effort to electrify rural areas, electric cooperatives consist of groups of customers who "join" the cooperative by paying a small membership or capital fee. These fees, plus low-interest loans from the U.S. government or private sources, are used to purchase equipment. The equipment is in turn used to supply electricity only to the members. The members are charged for the electricity to pay operating expenses; provide a cash basis for future expansion; and repay the loans. "Co-ops" are non -profit organizations and are thus exempt from income tax.
Electric cooperatives typically serve sparsely populated rural areas and very small towns. Their service areas may be "islands" within the service territory of an investor-owned utility, and, in some cases, may overlap, causing some competition between the two for customers. Very rarely do electric cooperatives own generation facilities, and often own very little or no transmission facilities. Cooperatives almost always buy electricity in bulk from an investor-owned utility or a nearby municipal utility, and distribute it to their customers, which are called "members".
All co-ops were chartered by the REA or Rural Electrification Administration, an early division of the U.S. Department of Agriculture. Today, co-ops are regulated by the Rural Utility Service, or RUS. The RUS is responsible for most operating loans to electric cooperatives and rigidly requires them to follow a number of operating guidelines.
Most electric cooperatives belong to the industry association called the NRECA, or National Rural Electric Cooperative Association. Headquartered in Washington D.C., the NRECA is a non-government association which gives its member co-ops guidelines in marketing and operations, and to a degree, represents their interests with the U.S. government. In a given state, a co-op may also belong to a statewide association of cooperatives.